Federal Group’s 20 year haul

Back in 1996 the Federal Group’s leisure business comprised the two casinos. Its revenue in that year was $134 million, well over half coming from gaming activities including tables, pokies and Keno. Net profit after tax for the leisure business was $4.4 million. The Group’s freight business provided another $2.2 million in profit. Borrowings were $50 million. In 1996 there was no spare cash to pay dividends to shareholders.

All was soon to change. On the first of January 1997 poker machines were rolled out into the community. Over the next 20 year the Group bought 12 pubs, the 9/11 bottleshop chain, built the Saffire resort, bought the leasehold business known as the Henry Jones Art Hotel, and acquired the lease on the new Maq01 hotel on Hobart’s waterfront.

The cash tsunami was such there was enough left to pay $238 million as dividends to shareholders over the period. At the end on the 2016 year borrowings were $123 million, an increase of only $73 million over the 20 year period.

The last three purchases cost the Group over $40 million. Conservatively if perpetual pokie licenses are given to pubs on the terms jointly suggested recently by THA and the Federal Group, the 12 pubs will have a value of at least $200 million. Without perpetual licenses, or if pokies are removed from the community altogether, the value of the Group’s pubs will be lucky to be $50 to $60 million in total.

This is the crux of the issue. It’s not so much about the rights of law abiding citizens to have a flutter but rather about the entitlements of a few to receive windfall gains at the community’s expense.

The 9/11 bottleshop chain was bought in 2006. Most of the above listed pubs now have 9/11 outlets. In addition there are nine stand alone bottleshops that make up the 9/11 chain of nineteen outlets.

A year ago, a bottleshop chain the size of 9/11 may have been worth up to $100 million. But Dan Murphy came to Launceston a few months ago.

With Dan’s tentacles reaching at least 15 kms, existing bottleshops in Launceston have reportedly lost between 30% and 50% of revenue. Most bottleshops can’t buy grog for the price at which Dan retails the stuff.

Dan will be opening in New Town in 2018 so there’s a lot of bottleshops within a 15km radius of the Maypole that will feel a lot of pain. That includes the Federal Group.

The 9/11 bottleshop chaim will lose much of its capital value.

Over the 20 year period the Group spent about $200 million acquiring existing businesses mainly pubs and bottleshops. The only new investment was $32 million spent on Saffire and in the last year $10 million fitting out Maq01.

This contrasts to evidence at the 2003 parliamentary inquiry into the extension of the exclusive licence until 2023 when Federal Group seduced the committee with assurances that:

“Very clearly, from the company’s perspective, we saw that for the company to give us essentially the opportunity to continue with the expansion of gaming in Tasmania over the next number of years was something that would require a quid pro quo. We saw that quid pro quo in a sense being a longer term of licence being negotiated by way of this new agreement, which would then provide the company with a greater level of certainty which, in a sense, would assist in underwriting its significant tourism investment strategy in Tasmania, which no doubt is something we are fully committed to …” (emphasis added)

Maybe the Group was committed to a significant tourism investment strategy in 2002 when it launched the Pure Tasmania brand, acquired Strahan Village and took over the lease of the West Coast Wilderness Railway and subsequently bought Cradle Mountain and Freycinet Lodge.

But within 10 years it had abandoned the strategy sold the regional assets and surrendered the lease on the railway.

Spending $200 million on existing businesses, mainly pokie pubs and bottleshops is not investing in new tourism assets by any stretch of the imagination. Nor is removing $238 million in dividends. That’s what the exclusive license gifted to the Group has allowed.

That’s what the battle to secure similar arrangement beyond 2023 is all about.

Given the small increase in the Group’s borrowing over the 20 year period it’s not unreasonable to conclude that the haul from pokies in the community has been at least $400 million.

The THA has always lusted after a bigger share of the pie for its members, particularly the owners of multiple pokie venues whose businesses are more structured around the haul from pokies.

The Federal Group has struck a deal with the THA to split the spoils a little differently. Players and the government have been ignored. Instead the two gangs have proposed to divide the booty amongst themselves, give all pokie venues a huge windfall capital gain via the gifting of perpetual licenses at the venue level rather than by way of a market-based arrangement as floated by the government, the prime motivation being the need to spare the community the trauma and expense of a tender process.

It’s little wonder such an outrageous display of greed has given succour to the move to remove pokies from the community. They only have themselves to blame.

It defies credibility that anyone would propose repeating the removal of $400 million from the community into private pockets over twenty years, for arguably little social gain (many would argue a social loss).

6 Comments

Jan

October 22, 2017 at 11:33 pm

Now it is going to be interesting with AU online gambling regulation in place – the impact it may have on this.

Stephen Menadue

September 19, 2017 at 4:17 am

To do a deal with the farrells to honour that resort being built is exactly how to lose the chance for abolition. It would entrench the machines where they are already and keep the conduit between the Government and the farrells connected and free flowing.

Stephen Menadue

September 18, 2017 at 2:36 am

Very eloquently stated P.C.

It’s very dirty in the water and plenty of rips happening.

Greg James

September 17, 2017 at 6:09 pm

The deal that Federal Hotels struck with Paul Lennon that created the Safire included the specification that Federal Hotels would build a convention centre on the East Coast. This Convention Centre never happened and the employment opportunities promised in return for more poker machines in the poorest suburbs was never honoured.
So the question that comes from this… why has the Liberal Government and the ALP opposition failed to enforce this? Why strike a deal, give away your wealth and receive little in return? Well, the answer is…this is Tasmania and it is corrupt. Both major parties are corrupted by the monopoly, the Liberals are willing to trade the very foundations and principles of ‘Free Enterprise’ and promote a monopoly that crushes small business and the ALP are willing to sell the poorest in our community for jobs with Federal Hotels after leaving politics. We deserve better, we can make it better. If you have to vote for a Party vote for candidates who are honourable first and then vote for the current members of parliament. If you are not committed to a party, why not try the range of independents, you can’t get much worse than the present corrupted lot who live in fear of making Federal Hotels actually live upto one of their previous agreements.

Pat Caplice

September 15, 2017 at 4:48 pm

Federal Hotels seems to have lost it’s mojo. Any previous questioning of their position of authority in Tasmania has brought on a broad and loud defense. In the past from the TICT, the Chamber of Commerce and the THA.

TICT and the Chamber of Commerce are taking a quieter backseat this time around.

The changing of the guard at TICT, the removal from the top of Simon Currant and the inclusion of directors not under the spell of Federal, as well as the realization that Pokies do nothing for tourism are keeping them quiet.

The Chamber may well have come to understand that the one way flow of cash out of the state is actually bad for their membership, and many small businesses.

That leaves just bellicose Steve Old, claiming to represent the THA, standing up for Federal and for Pokies.

The THA isn’t the Tasmanian Hotels Association, its the Tasmanian HOSPITALITY Association and has over 450 members. Old represents the just 7 groups/families who own 47 of Tassie’s Pokies Pubs. Another family, not a THA member, owns a further 22 Pokies Pubs.

James Boyce’s open letter to Hodgman and White had 50 signers who are, or could be, THA members. 26 of those came from publicans. Both city and country publicans.

Steve Old hasn’t talked to the THA membership about his unilateral plan to go to war with Labor if they decide to restrict Pokies to the casinos. If he does he will get the clear message that he is not speaking on behalf of the vast majority of THA members.

Old is all Federal have, and Old has nothing.

Pat Caplice
Rein in The Pokies

mike seabrook

September 15, 2017 at 3:36 am

remember the abt railwaty they promised to develop, maintain and operate at their expense
in return for a promise to……..

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